New Delhi: Auto industry body SIAM on Friday lashed out at the government for trying to impose higher tax on Indian diesel cars, while preparing to cut duties on those imported from Europe.

Expressing concern that India may be giving away too much in the proposed free trade agreement with EU, Society of Indian Automobile Manufacturers (SIAM) said that cutting import duties will not result in any benefit to auto makers.

"It is also a contradictory policy that while we are talking about discouraging production and use of large and diesel cars in India, for the same type of cars we will be reducing the import duty under the FTA and making imports cheaper," SIAM said in a statement.

The industry body has been expressing apprehension over speculations that in the upcoming Budget higher taxes could be imposed on diesel passenger vehicles as the subsidised fuel has been benefitting the affluent.

At the same time, it has also opposed cutting of duties on fully built cars from Europe as has been demanded by the EU as part of the ongoing FTA negotiations with India.

"SIAM understands from EU sources that India has made an offer to EU for reducing tariff of all cars from current 60 percent to 30 percent," it said.

Additionally a certain number cars, much more than what EU is exporting to India today, can be exported by EU at a highly reduced duty of only 10-15 percent, it added.

Such a move, SIAM said, will "be a total reversal of the policy of high tariffs to force investment, local manufacturing, local value addition and local employment and will not result in any benefit to the Indian auto-manufacturers".

Citing trade data of the Ministry of Commerce, it said already the trade imbalance in the automotive sector is heavily in favour of the EU.

"In 2010-11...EU is already exporting around USD 3.4 billion worth of cars as CBUs (completely built units) and CKDs (completely knocked down units), against India's export of USD 1.7 billion worth of cars," it said.

Automotive products export of EU to India grew by 51 percent last year, including 109 percent growth in car exports. This is against 11 percent growth in import of automotive products from India to EU, and decline of 15 percent in cars, it said.

SIAM further said if Indian duties are reduced from 60 percent to 10-15 percent, it will open up the domestic sector to severe and unjustified market distortions which will completely disrupt and even rollback the gains made in this sector over the last decade.

"Already the Japanese and Korean companies, who are the largest exporters of cars from India to EU, are protesting about tariff reduction under India EU FTA," it said.

These companies have made India a manufacturing base and from this strong base they are today exporting to not only EU but more than 100 other countries.

"Through this FTA government of India will create unfair competition to these very exporters and end up trading away the strong domestic base, without which their ability to compete with their EU competitors will be severely restricted thus eroding away their export competitiveness too," the industry body said.